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Ali Masarwah, MorningStar

Net sales of long-term funds slow again in September

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After witnessing flagging demand in August, net sales of long-term funds slowed down further in September. Europe domiciled open-end funds had net subscriptions of EUR36.1 billion, the lowest level seen in a one-month period since January 2017.

That’s according to the latest asset flows analysis from Morningstar which reveals that allocation funds took in net EUR6.5 billion, the lowest level seen since December 2016. Sales of alternative funds, which implement hedge funds strategies in the wrapper of regulated funds, dropped to a mere EUR104 million thus making September the worst month since November 2016.
 
Equity fund sales of EUR9.0 billion were driven by demand for actively managed funds, which enjoyed the second-highest one-month net inflows – EUR7.7 billion – this year. Conversely, open-end equity index funds took in a relatively modest EUR1.4 billion in September, the second-lowest level of inflows this year. Inflows to actively managed equity funds have by far outpaced passive equity funds’ sales in the third quarter – EUR21.0 billion compared to EUR8.9 billion.
 
For the year-to-date, however, European passive equity funds have outpaced actively managed equity funds in absolute turns, raking in EUR42.9 billion against the EUR39.0 billion which targeted actively managed funds. When using the organic growth rate as a measure of success, defined as flows percentage of beginning assets, passive open-end equity funds have clearly outpaced their active counterparts.
 
Global flexible-bond funds were the top-selling Morningstar Category in September going back to the continuous demand for PIMCO GIS Income. However, counting out the PIMCO fund, all other funds of this category combined saw negative net flows.
 
Net subscriptions of Japan large-cap funds hit a 30-month high, and demand for eurozone equity funds was the strongest since October 2015. This arguably reflects investors’ rising optimism for two regions that combine growth and relatively attractive valuations.
 
Euro government-bond funds suffered yet another month of outflows. These funds have only seen five positive months of inflows since the European Central Bank kicked off its massive quantitative-easing program in March 2015. While bond prices have risen, the return perspectives of euro government bonds are meagre.
 
The lion’s share of Standard Life’s outflows stemmed from its alternative Global Absolute Return Strategies (GARS) offerings, which have suffered 17 consecutive months of outflows. In the past 12 months, SLI’s multistrategy funds have lost 20% of beginning assets to outflows.
 
Ali Masarwah (pictured), EMEA Editorial Director for Morningstar, says: “Despite the waning demand for long-term in the past two months, by and large, 2017 is evolving to be an exceptionally good year for Europe’s fund industry, thanks to the substantial inflows in the first six months. Inflows to long-term funds stand at EUR450 billion for the year to date, more than fourfold last year’s levels. Thanks to buoyant markets in 2016-17, assets under management in European long-term funds took a leap from EUR6.59 trillion as of September 2016 to EUR7.49 one year later.”

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